Tuesday, December 13, 2005

Terry Pratchett on Venture Capital

I just finished Terry Pratchett's Going Postal (hey, it is the holidays!). It is another in the incredibly punny, and subtley in-your-face Discworld series. In it is this beautiful passage on venture capital, as spoken by Ankh-Morpork's despot Lord Vetinari (page 74 of the American paperback):

"Let us consider a situation in which some keen and highly inventive men devise a remarkable system of communication", he said. "What they have is a kind of passionate ingenuity, in large amounts. What they don't have is money. They are not used to money. So they meet some... people, who introduce them to other people, friendly people, who for, oh, a forty-percent stake in the enterprise give them the much-needed cash and, very important, much fatherly advice and an introduction to a really good firm of accountants. And so they proceed, and soon money is coming in and money is going out, but somehow, they learn, they're not quite as financially stable as they think, and really do need more money. Well, this is all fine, because it's clear to all that the basic enterprise is goinig to be a money tree one day, and does it matter if they sign over another fifteen percent? It's just money. It's not important in the way that shutter mechanisms are, is it? And then they find out that yes, it is. It is everything. Suddenly, the world's turned upside down, suddenly those nice people aren't so friendly anymore, suddenly it turns out that those bits of paper they signed in a hurry - were advised to sign by people who smiled all the time - mean that they don't actually own anything at all, not patents, not property, nothing. Not even the contents of their own heads, indeed. Even any ideas they have now don't belong to them, apparently. And somehow they're still in trouble about money. Well, some run and some hide and some try to fight, which is foolish in the extreme, because it turns out that everything is legal, it really is. Some accept low-level jobs in the enterprise, because one has to live and in any case the enterprise evens owns their dreams at night. And yet actual illegality, it would appear, has not taken place. Business is business."

The passage is quoted under the right granted by HarperCollins Publishers for brief quotations in reviews. Italics in the original.

Highly recommended! Buy a copy today.

1 comment:

  1. There's a new Australian show called "Dragons' Den" in which 5 VCs are put in a room, and individuals with small companies come in with a 5 minute pitch looking for investment.

    It doesn't take long to realise that the small business owners and the VCs have completely incompatible goals.

    The business owners expect that they look attractive if they can offer a good return on investment, where investment purchases a small portion of the company (say, 20%).

    The VCs are looking to take over a company that looks attractive, making sure they can direct what their money is doing every step of the way (I don't need to understand your business! I just need to understand how to do business!). Oh, and even though the business looks good enough to buy out, it's still worth no where near what you say it's worth.

    I already understood a portion of the VC process, but this show demonstrated quite a bit more for me. It's actually a little too disturbing to watch too often, since it's the same ruthless process over and over.

    If you hadn't already told me, I'd have worked out by now that you only approach a VC if you're not interested in being a part of the business anymore, and are prepared to throw away whatever you've invested in it.